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State-led work group to review utilities' stake in solar

The economics of solar power in Michigan — and whether DTE Energy Co. and Consumers Energy Co. are putting enough corporate energy behind a rebate program that encourages solar use by residential and commercial customers — is under review by a state work group.

The Michigan Public Service Commission last month upheld a two-year renewable energy plan proposed by DTE but ordered the Detroit-based utility to participate in a community work group that could recommend expanding the number of participants in DTE's SolarCurrents program. The program is for customers who purchase and install solar energy systems.

Jackson-based Consumers, the state's second-largest utility, voluntarily agreed to participate in the same work group on solar energy. The group's first meeting is slated for Feb. 4.

DTE (NYSE: DTE) initially rejected being part of the group in a Nov. 5 regulatory filing, saying the group has no authority to modify DTE's energy plan. However, DTE officials told Crain's last week it would work collaboratively with the group. The PSC will appoint the work group members.

Irene Dimitry

"We have a SolarCurrents program, and we believe it is running well and meeting the objectives of a pilot program," said Irene Dimitry, DTE's vice president of marketing and renewable energy.

"We will be ready if costs come down significantly" to expand the program, Dimitry said. "Right now, solar is still extremely expensive compared with other (forms of renewable energy). It is eight to 10 times more expensive (after incentives) than utility-owned wind," based on customer solar project invoices DTE has seen.

The work group's report is expected to be completed by July, said Judy Palnau, a PSC spokesman.

The report will recommend whether to expand DTE's SolarCurrents program and Consumers' comparable Experimental Advanced Renewable Program, or EARP. Both programs provide financial incentives for residential and business customers to build and install photovoltaic systems.

Key questions from the PSC deal with whether the utilities have enabled enough interested customers to participate, and with the programs' pricing structures.

The renewable energy lobby, meanwhile, seeks to stimulate the state's manufacturing and installation industries and considers increased rebate programs a part of that strategy.

Dianne Byrum, partner at East Lansing-based political advocacy firm Byrum & Fisk Advocacy Communications, said the future of energy in Michigan must focus on more than just one type of alternative energy. But if customers are asking for more solar energy, utilities should adapt to that, she said.

"There's a lot of interest in solar energy and the utility is not affording opportunities to have more solar," she said. "(DTE) is a regulated monopoly and they don't want to go beyond coal, but they have to be responsive to the market."

Arn Boezaart

Arn Boezaart, director of Grand Valley State University's Michigan Alternative and Renewable Energy Center in Muskegon, said as long as the state's renewable energy mandate remains at 10 percent, and other energy sources are less expensive, solar adoption will sputter.

"What you're seeing is Consumers and DTE at a point where they have their 10 percent locked up and they are not motivated do anything beyond that," Boezaart said.

In its Dec. 19 order approving DTE's renewable energy plan, the PSC said: "While (SolarCurrents) appears to be working reasonably well for the customers who are able to participate, there does seem to be pent-up demand for the program, which may indicate that the incentives need to be adjusted."

How much does solar cost? The PSC said a residential customer who installs a 5,000-watt system would pay about $4.50 per watt, or $22,500. A customer could receive an upfront payment from DTE of 20 cents per watt installed, or $1,000, the PSC said. Federal tax credits of up to 30 percent are available until 2016. Nonresidential customers follow a different rebate schedule, based on 13 cents per watt.

DTE's original solar plan paid customers $2.40 per installed watt to help defray capital costs. However, DTE's phase-two program only pays 20 cents per watt.

Dimitry said DTE offered larger subsidies in the first phase because solar prices were higher then. The lower financial assistance in phase two still allows capital paybacks in seven years.

"We don't want subsidies so rich that there will be a huge pent-up demand," Dimitry said.

Dimitry agreed that DTE's first SolarCurrents offering in 2009 had high demand. But she said interest has softened slightly during the second phase that began in 2012.

Last week, DTE announced it would accept applications through Feb. 13 for the third phase of SolarCurrents. A fourth phase will be added later this year, and a fifth in 2015, if necessary. Projects can range from 1 to 20 kilowatts.

Policy debate heats up

State law approved in 2008 requires utilities, including DTE and Consumers, to generate at least 10 percent of power from renewable energy by 2015.

Michigan Gov. Rick Snyder last month said he would support legislation increasing the state's 10 percent mandate. He suggested it could increase to 20 percent over a 10-year period to 2025. He did not address solar power other than to say that increasing Michigan-based renewable energy jobs is an important byproduct of his plan.

The PSC has the authority to approve renewable energy plans and consider the impact on private investment and energy diversification in Michigan when it considers utility plans. It's asked to consider the benefits to the state as a whole — one of the reasons for the community work groups.

Palnau said no utility has filed a legal or regulatory challenge PSC's right to order or encourage work groups to study various aspects of renewable energy plans.

While both utilities are on track to meet that 10 percent renewable energy goal, environmental and solar groups have asked the PSC to order the utilities to increase solar power production.

DTE plans to produce nearly 2 percent of its 10 percent renewable energy production from solar through its company-owned plants and residential and business programs. Consumers plans to produce 0.7 percent from its residential and business-only program, the company said.

"Both utilities are in a similar position," said Brad Klein, senior attorney with the Chicago-based Environmental Law & Policy Center. "They have kept solar as a small experimental program instead of expanding it to help industry develop in Michigan.

"We think the commission should require the utilities to do more with solar, especially since prices have dropped dramatically the past two years."

But David Ronk, Consumers' director for transactions and wholesale settlements, said while Consumers agreed to participate in the community work group, it doesn't believe a shift to more solar energy will be workable in the near term.

"Solar continues to be one of the more expensive technologies available, even though we have seen evidence that the cost of solar has declined," Ronk said. "We are reluctant to spend a lot of money at this point to expand these pilot programs beyond levels currently invested in them given other renewable technologies could be funded at a lower cost than the solar programs."

Dimitry said it makes no sense for DTE to expand its solar program while it is still recruiting customers to participate in a 2-megawatt expansion. DTE extended the program in 2012 after the PSC similarly questioned a proposal to end SolarCurrents.

The company selects projects from applicants across Southeast Michigan. In an August 2013 round, incentives were awarded to 56 residential projects and 11 small-business projects.

DTE contends it is unreasonable for the PSC to burden the company and its customers with higher energy prices by mandating additional expansion.

More solar jobs?

Doug Jester, a principal with 5 Lakes Energy LLC, a Lansing-based energy consulting firm, said solar panel cost reductions are a huge driver to more installations in Michigan. He said solar now costs three times more than wind in Michigan, but those solar installation prices have dropped 65 percent since 2011, according to GTM Research.

Jester said increasing utility programs would help the Michigan solar industry grow and keep up with such other states as Ohio, Illinois, Indiana and New Jersey.

Jester recommended the PSC order DTE to increase SolarCurrents to 42 megawatts from DTE's current 22-megawatt goal.

Jester said several states have created set-asides for solar power.

For example, New Jersey Gov. Chris Christie last year promoted the approval of a 22.5 percent renewable energy standard. The legislation increases the amount of electricity produced from solar to 2.05 percent from 0.5 percent.

Grand Valley's Boezaart said increasing the state's renewable mandate, over the long term, would create market certainty, thereby creating more jobs.

"If the Legislature raised the mandate to 30 percent by 2035, we'd see a reaction by the marketplace," he said.

Mark Hagerty, president of Commerce Township-based Michigan Solar Solutions, said the PSC expanding solar rebate programs could help bring back the solar installation industry locally.

"Most of my competitors have gone out of business," Hagerty said, "because of low financial assistance from DTE and Consumers and residential customers who don't see enough economic benefits to purchase an $18,000 solar system.

"If the commission ordered DTE to expand solar by 5 megawatts, my business could increase by 400 to 500 percent and I could hire more people."